Asked by Jakob Deckard on May 27, 2024

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In a competitive market, if both demand and supply curves are linear, then a per-unit tax of $10 will generate exactly the same deadweight loss as a per-unit subsidy of $10.

Deadweight Loss

A loss of economic efficiency that occurs when equilibrium for a good or service is not achieved or is not achievable.

Per-Unit Tax

A tax that is levied on a product based on a fixed amount per unit sold, not based on the value of the product.

  • Calculate and interpret the effects of taxes, subsidies, and government interventions on market equilibrium and prices.
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AP
Allison PersaudJun 02, 2024
Final Answer :
True
Explanation :
This statement is true. In a competitive market, a per-unit tax and a per-unit subsidy of equal amounts will have equal but opposite effects on the equilibrium quantity and price. However, the deadweight loss generated by either policy will depend on the elasticity of both demand and supply. If both curves are linear, the deadweight loss will be equal for both policies.